Sembcorp Marine Ltd - PhillipCapitalinternetfileserver.phillip.com.sg/POEMS/Stocks/Research/Research... · than the shortage, causing the glut to persist until year end. Similarly,

Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 118/10/2015 Ref. No.: SG2016_0132

Sembcorp Marine Ltd In Survival Mode SINGAPORE | OIL & GAS | INITIATION

Dragged by the cyclical downturn of Offshore and Marine (O&M) sector, Sembcorp Marine (SMM) is undergoing a tough period.

Persistent near-term headwinds; may see turnaround only in 2017. SMM has taken mitigating steps; now in survival mode. M&A and divestiture opportunities prevail at the trough of the cycle. We initiate coverage on SMM with a Sell rating and a target price of S$1.16 based on

forward P/E of 12.2x, which implies a downside of 24.9%. Investment Thesis Slow oil market recovery amid a lacklustre near-term outlook. In retrospect, oil price plunged from over US$100/bbl since mid of 2014 and trended downward for the whole 2015. The deterioration continued to Jan 2016 and logged a 12-year low at just under US$30/bbl. Thereafter, the oil price has recovered to the current level at around US$50/bbl. Fundamentally, the supply glut still exists and is expected to ease only by end of 2017.

Currently, the offshore and marine sector is facing a cyclical downturn, awaiting to revive

in 2017 or 2018

The estimated offshore exploration and production spending fell to new low since

2012 but is expected to start recovering in 2017.

Offshore drilling market fell along with the oil price plunge and display a lag. Rig

count continues to drop, and the overall utilisation rate remains low.

Floater market sees potential turnaround despite the current weak demand, and

expects to bottom out in 2017.

The mismatch between supply and demand of offshore support vessel worsens,

leading to a slow recovery.

The number of vessels call for repair in Singapore shipyard is trending down.

Investment Actions We initiate on SMM with a “Sell” rating and a target price of SG$1.16 based on 12.2x FY16E P/E, which implies a downside of 21.9%.

4 July 2016

Sell (Initiation)CLOSING PRICE

FORECAST DIV

TARGET PRICE

TOTAL RETURN

COMPANY DATA

O/S SHARES (MN) : 883

MARKET CAP (USD mn / SGD mn) : 619 / 892

52 - W K HI/LO (SGD) : 1.1 / 0.97

3M Average Daily T /O (mn) : 1.16

MAJOR SHAREHOLDERS (%)

61.0%

FRANKLIN RESOURCES 5.0%

PRICE PERFORMANCE (%)

1M T H 3M T H 1Y R

COMPANY 0.0 (2.9) 8.1

STI RETURN (4.6) (9.2) (16.5)

PRICE VS. STI

Source: Bloomberg, PSR

KEY FINANCIALS

Y /E Dec, S GD mn FY 15 FY 16e FY 17e FY 18e

Revenue 4,968 3,764 4,025 4,254

Gross profit 131 376 443 510

Net Profit (290) 199 241 287

P/E (x) 10.0 12.2 10.1 8.5

P/B (x) 1.2 1.2 1.3 1.3

EV/EBITDA 7.7 13.7 13.0 12.4

Dividend (SG Cents) 6.0 4.6 5.4 7.0

Dividend Yield, % 4.2 4.0 4.7 6.0

Source: Company Data, PSR est.

VALUATION METHOD

P/E Multiple (PER:12.2x)

Chen Guangzhi (+65 6212 1859)

[email protected]

SGD 1.160

-21.9%

SEMBCORP INDUSTRIES LTD

SGD 1.545

SGD 0.046

0.90

1.40

1.90

2.40

2.90

3.40

Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16SMM SP Equity FSSTI Index

Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE)

SEMBCORP MARINE LTD INITIATION

Company Background

With more than 50 years of experience in offshore and marine (O&M) business.

Sembcorp Marine (SMM) is engaged in four O&M segments, namely, rigs and floaters, repairs and upgrades, offshore platforms, and specialised shipbuilding.

The Group’s global footprint has reached 10 countries across 5 continents, out of which, North America and Europe are the major revenue sources.

As of Mar 2016, after securing S$60mn new orders, the net order book was reported at S$9.7bn with deliveries to 2020, out of which were S$4.5bn drillship contracts, S$1.7bn offshore platform contracts, $1.7bn floaters contracts, S$1.4bn semi-submersible contracts, and S$0.5bn jack-up contracts.

To enhance its market position in the O&M industry, the Group constantly undergoes transformation. With the establishment of the Tuas Boulevard Yard to cater for ship building, repairmen, and upgrades, coupled with the further investment in near-shore floating production terminals, the Group could capture the upward momentum of natural gas demand.

Investment Thesis

1. Oil market slowly recovers over a medium-term period amid a lacklustre outlook

In retrospect, oil price plunged from over US$100/bbl since mid of 2014, and trended downward for the whole 2015. The deterioration continued into Jan 2016, when it found a new low at under US$30/bbl, a level not seen since November 2003. Thereafter, the oil price has bucked the trend, recovering to the current level at around US$50/bbl.

Essentially, oil price is determined by the forces of supply and demand, and is very sensitive to any imbalances. The violent price swing was attributed to other factors, such as sluggish world economic growth, disagreement of energy policies within energy exporting countries, and growing trend for alternative energy (increasing efforts to expand the application of non-fossil energy). Nonetheless, it all boiled down to the supply glut caused by US shale-oil production which has significantly impacted the overall oil market.

According to the OPEC Monthly Oil Market Report (MOMR) 2016, the world oil demand in 2016 is estimated to be 94.18mb/d with 1.2% YoY growth. Deducting the supply amount of 62.69mb/d from non-OPEC and OPEC NGLs, the shortage is estimated to be 31.49mb/d. However, OPEC failed to reach the consensus to limit the output between the range of 31.8mb/d to 32.5mb/d in early June 2016. With the current output level has been above the limit range, maintaining at around 32.8mb/d, the OPEC supply in 2016 will be more than the shortage, causing the glut to persist until year end. Similarly, Energy Information Administration’s (EIA) short-term energy outlook (STEO) published in June, also projected the excess oil supply to remain in 2017, referring to Figure 2.

Figure 1. Supply/demand balance for 2016, mb/d

Source: MOMR June



Figure 2. World liquid fuels production and consumption balance

Source: STEO June, EIA

The narrowing spread offers some tentative hope to the global oil market recovery.

Based on the forecast, total world oil production is estimated to be 96.23mb/d and 97.02mb/d respectively. Correspondingly, the respective world oil consumption in 2016 and 2017 is estimated to be 95.26mb/d and 96.73mb/d, leaving 0.97mb/d and 0.29mb/d spread in this year and the following.

In a nutshell, though oil supply and demand balance is expected to improve by next year end, but as long as the surplus oil supply prevails, oil price still has a long way to go before reverting to its peak level seen in 2007-08 and 2010-14, where oil price was consistently above US$90/bbl. According to the guidance from World Bank and IMF, oil price will sustain within the band of US$56/bbl to US$67/bbl by 2018, referring to Figure 3.

Figure 3. Average crude spot price forecast (Brent, Dubai, WTI)

Source: World Bank, IMF, PSR

2. Currently, the offshore and marine sector is still facing a cyclical downturn, impending to revive only in 2017 or 2018

Generally, there are two subsectors in O&M industry: 1) offshore wind energy, and 2) offshore oil and gas. The former is the relatively novel sector with advanced technology requirement, which is engaged in recyclable wind resources. According to Global Wind Energy Council, as of 2015, the installed capacity from offshore wind sector reached 12.107MW, taking up only 3% of global wind capacity, implying more room for it to develop. On the other hand, the offshore oil and gas remains the major player in power production – hence, we will focus more on analysing this subsector.

The oil price plunge set a gloomy tone on O&M market, particularly the upstream sectors. Not only it weighed on the profit margins of oil producers (e.g. Shell, ExxonMobil and BP), it also deteriorated the prospect of oil field services and equipment providers (e.g. Transocean, Seadrill, and Diamond offshore) – due to sluggish new demand growth, as well as the existing orders postpone and default. Since the unexpected oil rout, most orders or development strategies that were made at the peak of the cycle have now become obsolete. Furthermore, given their capital- and labour-intensive nature, it is difficult for companies to make timely adjustments to deal with the volatile oil market. Therefore, it



may take years for the O&M market to recover.

Snapshot on the offshore drilling rig market Referring to Figure 4, we compared the world’s total rig count (released by Baker Huges) with the crude oil price trend from 2011 to year to date. The highly positive correlation is conspicuous. Prior to oil market downturn, the oil price remained at US$80/bbl and above, while the average number of operating rigs worldwide was more than 3,300. However, we see a paradigm shift when oil price went into a free fall – rig count maintained at a stable level with 6 months lag. This evidenced the industry’s slow adjustment to low oil price environment.

The cutback of rig count only started to occur when oil price had already dipped by 50% from its high at over US$100/bbl to around US$50/bbl. Right after a slight rebound in 1Q15, the oil price continued to drop further. Similarly, rig counts started to decrease with 3 months lag.

Figure 4. World rig counts and oil price trend

Source: Baker Hughes, PSR

Another sign showing a lacklustre outlook is the facility’s utilisation rate. As shown in Figure 5 and 6, the respective utilisation rate of semisubmersible, drillship, and jack-up have dropped to new lows as of May 2016, due to soft demand. The continuing low utilisation rate could trigger more delays in newbuild delivery, as well as more order and contract cancellations.

Only when the oil price stabilises at a profitable level for those drillers, and they are operating at close to full capacity simultaneously, then a new uptrend of orders and deliveries could be formed.



Figure 5 & 6. Supply, Demand, and Utilisation

Source: Offshore Summary May 2016, Lorentzen & Stemoco

Referring to Figure 7, the amount of upstream exploration and production (E&P) spending has been increasing over a decade before it reached its peak at US$202bn in 2014. The budget reduction is estimated to continue in 2016. However, the 2017 investment scale in offshore E&P is projected to return to the same level as seen in 2015, and continue to grow afterwards, based on the expectation that the spread between supply and demand will narrow. In other words, 2016 is the year that the investment cycle would hit the trough, and to bottom out in 2017.

Figure 7. Offshore E&P spending by region

Source: IHS

According to McKinsey Energy Insights, the sectoral medium-term outlook from 2017 to 2025 is positive. It cited a major trend of new generation of higher specification rigs displacing old lower specification rigs. Currently, 50% of the total jack-up rig fleet is over 30 years old, which is beyond its average life. As older rigs retire gradually, the market is being balanced accordingly. Based on the



estimation, there will be over 120 new jack-ups delivering into the market with 1% growth annually to 2025. As for the deepwater segment, according to Doulas-Westwood (DW), the total capex over the period of 2016 to 2020 is estimated to be US$137bn with -6% CAGR. The contraction is expected to continue till 2018, before begin to increase gradually in 2019.

To draw a conclusion, the market will continue to be pressured by the low oil price environment in near-term, but it should benefit from the oil rig displacements in the medium- and long-term.

Snapshot on floating production system market

Floating production systems comprise of floating, production, storage, and offloading vessels (FPSO), floating liquefied natural gas vessels (FLNG), mobile offshore production unit (MOPU), and so forth. The advantages of these units are flexibility and cost-effective comparing to those fixed drilling platforms.

According to Energy Maritime Associates (EMA), 17 contracts of floating production systems with a total value of US$7bn were awarded in 2015. There were 6 orders from LNG-related units, and it was the first time that the number exceeded those of FPSOs, which was only 4 orders, representing the 20 years historically lowest level. Meanwhile, 26 units were idle without contracts, and they would be scrapped, redeployed, and delayed, referring to Figure 8.

Figure 8. FPS System Awarded from 1997 to 2015

Source: EMA

In 1Q16, EMA reported that no order has been placed since Jul 2015, and 9 more units were idle without the contract since last year end. Based on its estimation, 27 floating production units are about to be off from operation over the next 12 to 20 months. Since the E&P activities has been muted, the segment will be on a survival mode for the market players. However, EMA assumes that 28 new projects could be awarded by 2017.

Referring to Figure 9, according to Douglas-Westwood, between 2016 and 2020, the global expenditure on installations is expected to reach US$58bn, and capex on FSPOs will account for 79% of the total capex.

In addition, McKinsey Energy Insights expects more than 200 new floaters to



operate by 2025 with 5% growth per annum from 2017 to 2025. In other words, the market could bottom out in 2017, favouring the operators to deploy newbuilds in lower costs.

Figure 9. Expenditure on FPS units

Source: Douglas-Westwood

Snapshot on offshore support vessel (OSV) market

Different from commodity shipping vessels, OSVs mainly provide specialised E&P services such as drilling, pipeline establishment, storage, and so forth. There are three main types of OSVs, namely anchor handling tug supply (AHTS), construction support vessel (CSV), and platform supply vessel (PSV).

As previously discussed, subject to the weak global E&P activities, the mismatch between supply and demand among OSV markets enlarged since mid-2014. Referring to Figure 10, prior to Jul 2014, the gap between supply and demand of OCV vessel days maintained at around 7,500, and the utilisation rate hovered within 60% to 70%. Considering the oil price (Brent) was at US$100/bbl during that period, we assume that this is the relatively balanced market status. However, as of May 2016, the gap was enlarged, arriving at 17,000 days, with the utilisation rate dropped below 50%.

Figure 10. OCV Activity


Similarly, oversupply issue has also affected the PSV and AHTS segment, referring to Figure 11. Total supply of PSV and AHTS has been increasing until last year end, but the demand didn’t keep pace with the supply since it peaked at mid of 2014. As a result, the utilisation rate dipped to a new low below 50% as well. Over the 8 years track record, we think that the global effective demand for PSA and AHTS is around 1,000, and given the average normalised utilisation rate ranges from 60% to 70%, the corresponding balanced supply should be around 1,600 to 1,700.



Figure 11. PSV and AHTS Activity


Clarkson Research 2016 mentioned that there were 476 units of PSV and AHTS in the order book to be delivered, and the insufficient demand cannot meet such a level of supply within OSV market in the coming 5 years. Therefore, the operators have to go through a longer than expected challenging period and endure a slow recovery.

Glimpse at Singapore ship repair market

According to the Maritime and Port Authority of Singapore (MPA), the number of vessels call for repair has been decreasing since it peaked in 2010, and it dropped to 4,141, the 9-year low, in 2015. Going forward into 2016, the number totalled at 1,538, dropping by 22% YoY in the first 4 months, referring to Figure 12. We estimate that the number of ships calls for repair could further decrease by 20% YoY. As far as the weights of the repaired ships, referring to Figure 13, the tonnage did not show the obvious downtrend. Even during the past 2 years, it remained at more than 40mn gross tonnes (mgt). Therefore, it indicated that Singapore shipyards have been ramping up the capacity for larger sized vessels repair. However, tonnage count in 4M2016 dropped by 25% YoY to 9.3 mgt, due probably to the lower shipping activities that lead to lower demand for ships repair.

Figure 12. Number of vessels call for repair

Source: MPA, PSR

Figure 13. Weight of vessels call for repair

Source: MPA, PSR



Investment Merits

1. Rig building segment is undergoing the toughest period

In 2012, SMM entered the new segment, drillship, together with jack-ups and semi-submersibles, diversifying its product mix in the rig building segment. Referring to Figure 14, the number of new contracts secured in a year have been substantially declining over the past four years. Therefore, since the order book is progressively recognised into revenue based on the percentage of project completion with lower replenishment of new contracts, the backlog by the year end also dwindled, as shown in Figure 15.

On average, the respective costs of a jack-up and a semi-sub/drillship are US$200mn and US$600mn-US$700mn. As of Dec, around 20% of the order book were on back-ended payment terms, and the rest were subject to 30% of upfront payment terms.

Figure 14. Contracts secured by year

Source: Company, PSR

Figure 15. Rig building net order book


Not only the capex of the newbuilds dropped sharply in the upstream sectors as mentioned previously, but also some oil producers that suffered from solvency issues due to low oil price defaulted on the signed contracts. In Nov 2015, Marco Polo Marine unilaterally terminated the rig orders valued at US$214mn (S$290mn). In 1Q16, there were still 7 drillship units under work-in-progress for Sete Brasil, which filed for bankruptcy in Apr 2016. In the worst scenario that if all these contracted were terminated, the order book would have been cut by US$2.29bn (S$3.2bn). Though SMM had pursued the claim against Marco Polo Maine and made impairment and provision of S$329mn related to Sete Brasil’s projects, the everlasting market downturn will trigger more unexpected defaults from the SMM’s counterparties. However, SMM has worked with clients to extend the delivery and payment period in order to relief clients’ pressure. Generally, the time frames to complete the construction of a jack-up and a semi-sub/drillship are up to 24 months and up to 30 months, respectively. The current backlog is expected to be delivered by 2020. As a result, the recognised revenue sank, referring to Figure 16.

Figure 16. Turnover by year




2. Floaters and offshore platform segments remain resilient

As of 1Q16, the net order book value of floater and offshore platform each accounted for 17% of the total backlog. Referring to Figure 17, the two segments each managed to secure more than S$1bn contracts in every 2 years from 2012 to 2015, which replenished the net order book stably. As shown in Figure 18 and 19, the turnovers of each segment both displayed upswing momentum amid the downtrend of oil price, and the backlog decreased accordingly. As of 1Q16, each segment has 1 project under planning and engineering stage. Given the current net order book level, we estimate that both segments could maintain the stable performance in this and next year without substantial drop even if SMM fails to secure big contracts.

Figure 17. Contracts secured by year

Source: Comapny, PSR

Figure 18. Floater and offshore platform net order book


Figure 19. Turnover by year




3. Ship repairs & upgrades segment is under downward pressure

Referring to Figure 20, the segment revenue stepped down by 8.7% YoY in 2014 and 10.5%

YoY in 2015 since its peak in 2013. Though the vessels docked for repair and upgrade kept

increasing, the downswing of average revenue earned per unit dragged down the whole

segment performance. The situation was due mainly to the increasingly fierce competition

not only within ASEAN region but also from Korea and China shipyards. However, the

Group is poised for the upside momentum in the LNG repairs and upgrades. In FY15, SMM

had 34 LNG related vessels repaired and upgraded, which was the highest number globally.

Figure 20. Vessel repairs and upgrades

(Note: SMM did not disclose the number of vessels repaired and upgraded in 2013, so we made an estimate of the average of numbers of 2012 and 2014)




How Do We View SMM?

In the face of the challenging environment, SMM is also under difficult operation

Referring to Figure 21, the product mix over the past five years showed that the main revenue contributor is still rig building segment. Since the upstream E&P capex is freezing, SMM will focus more on the current backlog, enhancing the capability to deliver the projects and collect the rest of the payments. On the condition that the oil price recovers to above US$80 by the end of 2017 and stabilises at such a level, it will signal the end of the trough of the cycle.

With the dynamic balance of oil supply and demand, the offshore oil fields equipment market is also balancing. Moreover, around 50% of the current rigs in the market have worked over 25 years, thus the wave of decommissioning and replacement will bring a market boom in the foreseeable future. Therefore, we think the market is going to form a U-shape curve, but the bottom of the U-curve could last from 3 to 5 years. Accordingly, SMM has a negative outlook in this and next year, but the business should turn better onwards.

Figure 21. Segment breakdown


More stringent cost control is necessary for the survival mode SMM has adopted various cost reduction and rationalization measures.

Firstly, the Group managed to take steps to match the labour force to the workload of the current order book, including headcount reduction, reallocation, and sub-contractors optimisation.

Secondly, through Sembmarine SSP, a subsidiary specialises in the design, engineering, drilling and delivery solutions, SMM can promote the self-design projects without hiring the third party designer in order to increase the profit margin. In Jun 2016, it acquired 50% interest in KANFA Aragon AS to improve the capability in tailored design and solutions. According to the management, the gross profit margin of self-design can be up to 20%.

Lastly, it strategically established a new highly automated steel fabrication facility on the



Phase II marine work of Tuas Boulevard Yard. The facility can streamline the production process, and it reduces the dispatch costs among the building, repairing, and upgrading work.

It’s a good time for M&As The tide of the bankruptcy of those failed to get through the current tough period has emerged. The valuable assets owned by those builders or operators who are forced out of the market will be up for grab. SMM can leverage the opportunity of seeking for undervalued assets such as PP&E, talents, and technology. Meanwhile, SMM could also divest redundancies to further optimise the corporate structure, as well as replenish cash on hand.

Key Assumptions

Y/E Dec (S$mn) FY14 FY15 FY16e FY17e FY18e

New orders secured 4,172 3,171 2,378 2,664 3,196

Growth rate -1% -24% -25% 12% 20%

Net order book 11,432 10,368 9,560 8,801 8,398 Revenue (excluding ship

repairs and upgrades) 5,132 4,335 3,187 3,423 3,599

% of the orders booked

into revenue 31% 30% 25% 28% 30%

Ship repairs and upgrades 622 557 502 527 579

Growth rate -9% -10% -10% 5% 10%

Others 79 76 76 76 76

Total revenue 5,833 4,968 3,764 4,025 4,254

EBIT 707 -150 288 347 409

EBIT margin 12% -3% 8% 9% 10%

NP, adj 560 384 199 241 287

NP margin, adj 10% 8% 5% 6% 7%

Valuation Methodology

Our primary valuation method is using the simple average of the forward P/E ratio during the oil market crash from Jul 2014 till now. We think that the market sentiment has been factored into the forward P/E since SMM’s price is highly correlated to the oil price, which fluctuated along with the market events closely.

Figure 22. 12-month forward P/E

Source: Bloomberg, PSR

New contracts We assume the growth rate of the new orders secured based on the general market E&P spending growth.

Revenue recognition As the Group will delay the deliveries, we assumed the proportion of order book that is recognised into revenue decrease in 2016 and 2017 and back to the original level in 2018.

Repairs and upgrades The completion of Phase II in Tuas Boulevard Yard in 2017 will ramp up the capacity.



Currently, SMM is trading at a forward 12-month P/E of 14.6x, which is between the range of +1 S.D. and +2 S.D. of its historical mean. We think the average P/E of 12.2x as the base multiple is reasonable because SMM will still see near-term pressure in this year.

We initiate SMM with a Sell rating and a target price is $1.16, based on estimated 9.5 Singapore cents FY16 EPS and a P/E ratio of 12.2x. This implies a downside of 24.9% (including dividends) from the last closing price.

Investment Risks

Here we list the key risks for consideration:

Risks Remarks

Privatisation SMM's parent company, Semcorb Industries possibly privatises it

if SMM encounters huge sell-off and the stock value is far below

the NAV

FX risk Strengthened US$ can increase the reporting earnings in S$

Large contracts secured If SMM secured large size contract, it will show a positive outlook

for the ongoing business

Substantial rise in oil price Due to high correlation with the oil price, it will follow the oil

price uptrend

Credit risk The existing customers may default on the remaining payments

or terminate the contracts.

FX risk Weakened US$ can decrease the reporting earnings in S$

Further dip in oil price Due to high correlation with the oil price, it will follow the oil

price downtrend

Political risk The turmoil of political environment will dismay outlook of the

operating environment

Upside

Downside



Financials

Income Statement Balance Sheet

Y/E Dec, SGD mn FY14 FY15 FY16e FY17e FY18e Y/E Dec, SGD mn FY14 FY15 FY16e FY17e FY18e

Revenue 5,833 4,968 3,764 4,025 4,254 ASSETS

Gross profit 844 131 376 443 510 PP&E 3,009 3,541 3,852 3,957 4,158

EBITDA 822 (18) 441 507 573 Trade receivables 41 54 54 54 54

Depreciation & Amortisation 115 132 154 160 164 Intangible assets 53 47 41 35 29

EBIT 707 (150) 288 347 409 Associates & JVs 470 312 264 254 272

Net Finance (Expense)/Inc (11) (36) (62) (70) (78) Others 98 131 125 125 125

Associates & JVs 10 (173) 10 9 10 Total non-current assets 3,671 4,084 4,335 4,425 4,638

Profit Before Tax 707 (378) 236 287 341 Cash 1,079 629 754 698 688

Taxation (106) 78 (31) (37) (44) Trade receivables 469 590 637 607 588

Profit After Tax 601 (300) 206 250 297 Inventories & WIP 3,005 3,833 4,206 4,575 4,813

Non-controlling interest 41 (10) 7 9 10 Others 14 65 - - -

Net Income, reported 560 (290) 199 241 287 Total current assets 4,567 5,117 5,597 5,880 6,088

Net Income, adj. 560 384 199 241 287 Total Assets 8,238 9,201 9,932 10,305 10,726

LIABILITIES

Trade payables 84 78 81 81 81

Per share data Borrowings 1,308 2,465 3,465 3,965 4,465

Y/E Dec FY14 FY15 FY16e FY17e FY18e Others 266 97 94 94 94

EPS, basic (Cents) 26.8 (13.9) 9.5 11.5 13.7 Total non-current liabilities 1,658 2,640 3,640 4,140 4,640

EPS, diluted (Cents) 26.8 (13.9) 9.5 11.5 13.7 Trade payables 1,853 2,519 2,271 2,024 1,777

DPS, basic (Cents) 13.0 6.0 4.6 5.4 7.0 Borrowings 434 915 915 915 915

DPS, diluted (Cents) 13.0 6.0 4.6 5.4 7.0 Progress billings in excess of WIP 1,005 288 216 242 290

BVPS 1.4 1.2 1.2 1.3 1.3 Others 184 175 171 171 171

Total current liabilities 3,476 3,897 3,574 3,352 3,154

Total Liabilities 5,133 6,537 7,214 7,492 7,793

Shareholder Equity 2,965 2,511 2,581 2,689 2,803

Cash Flow Non-controlling interest 167 153 138 124 130

Y/E Dec, SGD mn FY14 FY15 FY16e FY17e FY18e

CFO Valuation Ratios

Operating profit 707 (150) 288 347 409 Y/E Dec FY14 FY15 FY16e FY17e FY18e

Adjustments 144 686 161 167 171 P/E (x) 15 10 12 10 8

WC changes (1,267) (1,364) (667) (587) (466) P/B (x) 3 2 1 1 1

Cash generated from ops (417) (828) (219) (73) 115 EV/EBITDA (x) 10.2 7.7 13.7 13.0 12.4

Others (91) (161) (92) (107) (122) Dividend Yield (%) 3 4 4 5 6

Cashflow from ops (508) (989) (311) (180) (7) Growth & Margins (%)

Growth

CFI Revenue 6% -15% -24% 7% 6%

CAPEX, net (738) (932) (459) (259) (359) EBITDA 10% n.m. n.m. 15% 13%

Others (32) 0 - - - EBIT 10% n.m. n.m. 15% 13%

Cashflow from investments (770) (932) (459) (259) (359) Net Income, adj. 1% -31% -48% 21% 19%

Margins

CFF EBITDA margin 14% 0% 12% 13% 13%

Loans, net of repayments 964 1,744 1,000 500 500 EBIT margin 12% -3% 8% 9% 10%

Dividends to shareholders (272) (251) (90) (104) (129) NP margin, adj. 10% 8% 5% 6% 7%

Dividends to non-controlling interest (13) (15) (13) (13) (14) Key Ratios

Others (10.8) (11.4) - - - ROE (%), adj. 19% 15% 8% 9% 10%

Cashflow from financing 668 1,467 897 383 357 ROA (%), adj. 7% 4% 2% 2% 3%

Net change in cash (611) (454) 127 (56) (10)

Effects of exchange rates (7) 5 - - - Net Debt or (Net Cash) 663 2,751 3,626 4,182 4,692

Ending cash 1,077 627 754 698 688 Net Gearing (x) 0.2 1.0 1.3 1.5 1.6

Source: Company, Phillip Securities Research (Singapore) Estimates n.m.: not meaningful*Forward multiples & yields based on current market price; historical multiples & yields based on

historical market price.



Total Returns Recommendation Rating

> +20% Buy 1

+5% to +20% Accumulate 2

-5% to +5% Neutral 3

-5% to -20% Reduce 4

< -20% Sell 5

We do not base our recommendations entirely on the above quantitative return bands. We

consider qualitative factors like (but not limited to) a stock's risk reward profile, market

sentiment, recent rate of share price appreciation, presence or absence of stock price

catalysts, and speculative undertones surrounding the stock, before making our final

recommendation

Ratings History

PSR Rating System

Remarks

1 2 3 4 5

0.00

1.00

2.00

3.00

4.00

5.00

Sep-14

Dec-1

4

Mar-15

Jun-15

Sep-15

Dec-1

5

Mar-1

6

Jun-16

Sep-1

6

Dec-1

6

Source: Bloomberg, PSRMarket Price

Target Price



Contact Information (Singapore Research Team)

Consumer | Healthcare Property | Infrastructure Macro Soh Lin Sin - [email protected] Peter Ng - [email protected] Pei Sai Teng - [email protected] Transport | REITs (Industrial) REITs (Commercial, Retail, Healthcare) | Property Technical Analysis Richard Leow, CFTe, FRM - [email protected]

Dehong Tan - [email protected] Jeremy Ng - [email protected]

Banking and Finance US Equity Oil & Gas | Energy Jeremy Teong - [email protected] Ho Kang Wei - [email protected] Chen Guangzhi - [email protected]

Contact Information (Regional Member Companies) SINGAPORE

Phillip Securities Pte Ltd Raffles City Tower

250, North Bridge Road #06-00 Singapore 179101 Tel +65 6533 6001 Fax +65 6535 6631

Website: www.poems.com.sg

MALAYSIA Phillip Capital Management Sdn Bhd

B-3-6 Block B Level 3 Megan Avenue II, No. 12, Jalan Yap Kwan Seng, 50450

Kuala Lumpur Tel +603 2162 8841 Fax +603 2166 5099

Website: www.poems.com.my

HONG KONG Phillip Securities (HK) Ltd

11/F United Centre 95 Queensway Hong Kong

Tel +852 2277 6600 Fax +852 2868 5307

Websites: www.phillip.com.hk

JAPAN

Phillip Securities Japan, Ltd. 4-2 Nihonbashi Kabuto-cho Chuo-ku,

Tokyo 103-0026 Tel +81-3 3666 2101 Fax +81-3 3666 6090

Website: www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A Jakarta 10220 – Indonesia

Tel +62-21 5790 0800 Fax +62-21 5790 0809

Website: www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co Ltd

No 550 Yan An East Road, Ocean Tower Unit 2318,

Postal code 200001 Tel +86-21 5169 9200 Fax +86-21 6351 2940

Website: www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak,

Bangkok 10500 Thailand Tel +66-2 6351700 / 22680999

Fax +66-2 22680921 Website www.phillip.co.th

FRANCE King & Shaxson Capital Limited

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel +33-1 45633100 Fax +33-1 45636017

Website: www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Capital Limited

6th Floor, Candlewick House, 120 Cannon Street, London, EC4N 6AS

Tel +44-20 7426 5950 Fax +44-20 7626 1757

Website: www.kingandshaxson.com

UNITED STATES Phillip Futures Inc

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel +1-312 356 9000 Fax +1-312 356 9005

Website: www.phillipusa.com

AUSTRALIA Phillip Capital Limited

Level 12, 15 William Street, Melbourne, Victoria 3000, Australia

Tel +61-03 9629 8288 Fax +61-03 9629 8882

Website: www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited 2nd Floor, Lakshmans Building,

No. 321, Galle Road, Colombo 03, Sri Lanka Tel: (94) 11 2429 100 Fax: (94) 11 2429 199

Website: www.ashaphillip.net

INDIA PhillipCapital (India) Private Limited

No.1, 18th Floor, Urmi Estate 95, Ganpatrao Kadam Marg

Lower Parel West, Mumbai 400-013 Maharashtra, India

Tel: +91-22-2300 2999 / Fax: +91-22-2300 2969 Website: www.phillipcapital.in

TURKEY PhillipCapital Menkul Degerler

Dr. Cemil Bengü Cad. Hak Is Merkezi No. 2 Kat. 6A Caglayan 34403 Istanbul, Turkey

Tel: 0212 296 84 84 Fax: 0212 233 69 29

Website: www.phillipcapital.com.tr

DUBAI Phillip Futures DMCC

Member of the Dubai Gold and Commodities Exchange (DGCX)

Unit No 601, Plot No 58, White Crown Bldg, Sheikh Zayed Road, P.O.Box 212291

Dubai-UAE Tel: +971-4-3325052 / Fax: + 971-4-3328895

CAMBODIA

Phillip Bank Plc Ground Floor of B-Office Centre,#61-64, Norodom Blvd Corner Street 306,Sangkat Boeung Keng Kang 1, Khan Chamkamorn,

Phnom Penh, Cambodia Tel: 855 (0) 7796 6151/855 (0) 1620 0769

Website: www.phillipbank.com.kh

mailto:[email protected]









http://www.poems.com.sg/

http://www.poems.com.my/

http://www.phillip.com.hk/

http://www.phillip.co.jp/

http://www.phillip.co.id/

http://www.phillip.com.cn/

http://www.phillip.co.th/

http://www.kingandshaxson.com/

http://www.kingandshaxson.com/

http://www.phillipusa.com/

http://www.phillipcapital.com.au/

http://www.ashaphillip.net/

http://www.phillipcapital.in/

http://www.phillipcapital.com.tr/

http://www.phillipbank.com.kh/



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Documents

Sembcorp Marine Ltd - PhillipCapitalinternetfileserver.phillip.com.sg/POEMS/Stocks/Research/Research... · than the shortage, causing the glut to persist until year end. Similarly,